Consensus community valuation
Market Cap currently $474m
Brett Kelly (appointed on 16 April 2017)
Brett is the Founder and CEO of Kelly+Partners. He has more than 20 years of commercial and professional accountancy experience, specialising in assisting private clients, private business owners and families. He commenced his career as a Chartered Accountant with 5 years at PwC Australia, and then worked at 3 mid-sized accounting firms. In 2006, Brett founded Kelly+Partners with accounting businesses in North Sydney and the Central Coast, before building out the network to 30+ businesses over 30+ locations to date. Brett is also the best-selling author of four books on life, business and wisdom.
Stephen Rouvray (appointed on 2 May 2017)
Stephen has over 50 years’ experience in financial services across many senior leadership roles. He was Chief Financial Officer, Company Secretary and Manager of Investor Relations for AUB Group (formerly Austbrokers) from 2005 until 2015. Prior to this, he was General Manager for ING Australia Holdings from 2002 to 2005 having joined ING’s predecessor company, Mercantile Mutual, in 1985. Over this 20 year period, Stephen held the position of Company Secretary which included its subsidiary companies operating in the life & general insurance, investment management, funds management and banking sectors. At the start of his career, he worked in the accountancy profession from 1971 to 1984. Since retiring as CFO, Stephen continues to represent AUB Group as a director on the board of two of its associates.
Ryan Macnamee (appointed on 2 May 2017)
Ryan is an experienced business technology executive with over 25 years of IT management and cyber security experience. He is currently on the board of Thinkproject Australia & New Zealand, and previously held board positions at the Open Data Institute and Advanced Navigation. Ryan has served in numerous senior IT management roles, including Group Chief Information Officer (CIO) and Group Chief Information Security Officer (CISO), Ryan has also held various senior IT positions at financial, insurance, construction, and retail operations globally. Ryan is co-founder of ECPPro, a Microsoft Azure cloud focused solution provider helping large corporations and MSP (Managed Service Providers) to manage complex cloud environments.
Lawrence Cunningham (appointed on 1 July 2022)
Lawrence is an expert on corporate governance, culture, and structure. Since 2007, he has been the Tucker Research Professor at The George Washington University. Cunningham has written extensively on corporate affairs in university journals and periodicals. He has published many influential books, including The Essays of Warren Buffett: Lessons for Corporate America, in collaboration with Mr. Buffett; The AIG Story, with Hank Greenberg; and Quality Shareholders: How the Best Managers Attract and Keep Them.
Lawrence is Vice Chairman of the Board of Constellation Software Inc., a Toronto Stock Exchange company, and Director and former Treasurer of Ocean Colony LLC, a private resort in East Hampton, New York. Cunningham is a Trustee of the Museum of American Finance; a Member of the Dean's Council of Lerner College of Business at the University of Delaware; and a Member of the Editorial Board of Financial History.
Lawrence has served on the Boards of Directors of Ashford Hospitality Prime, an NYSE investor in luxury hotels; Pearl West Group, a private investment company in Vancouver, and Strata, a private technology company in Silicon Valley.
A former Corporate Associate of Cravath, Swaine & Moore, Lawrence consults for public and private corporations and advises management and boards of directors. He has received numerous awards, including the 2018 B. Kenneth West Lifetime Achievement Award from the National Association of Corporate Directors (NACD).
Paul Kuchta (appointed on 2 May 2017)
Paul is a Chartered Accountant with over 20 years' accounting experience specialising in the provision of compliance, tax and advisory services to private SME’s and their owners. He commenced his career with Farrar & Company Chartered Accountants in 1998, where he worked for 10 years. Paul then joined Crowe Horwath in 2008 for a further 4 years. He was a founding partner of Kelly+Partners Norwest when the practice was launched in 2012. Paul is the managing director of Kelly+Partners Sydney.
Ada Poon (appointed on 6 September 2019)
Ada has more than 20 years' professional accountancy experience and has specialised in accounting and taxation services to Private Business Owners based in Sydney, business and personal taxation compliance self-managed super funds and outsourced finance department services.
Seems like a decent result from Kelly Partners last week:
The disconnect between revenue and profit growth are largely attributable to the impact of new acquisitions and added investment. They reckon they can lift operating margins back to 35%, and have some good form on this front -- in fact adding operational efficiency is pretty much what they try to be all about.
Thumb sucking the next 12m of dividends, i reckon shares are on about 2% or so. The forward PE is probably around 25. While I think they can probably sustain a respectable average long-term growth rate (7-9% or so), it feels like shares are roughly around their fair value.
Noddy well summarised and respect the risk in terms of the debt accrued in FY22. Something to watch heading into FY23 in meeting long term goals.
Having looked into the Kelly Group after Andrew interview it was very interesting to hear the focus and clarity Brett displayed in respect to the process the group had built up and executed as they made acquisitions.
This is no doubt a driver of getting the PE up and investors willingness to pay for quality.
You simply know what your getting.
The strategy page in the presentation today caught my eye. Specifically in terms of meeting the 5yr plan.
Many corporations are ambitious in plans but to be at the end of the 3rd year of the 5 yr plan and within reach across the revenue , EBITDA and NPAT lines provides confirmation on the effectiveness of the discipline and process focus.
Fair to expect the EBITDA and NPAT margins to improve in FY23 as the acquisitions are bedded in.
Disc Holder RL
Kelly Partners came out with a very early full year results and Annual Report today and it was quite strong. Revenue growth accelerated in the second half to end the year up 32.6% vs FY21. EBITDA and NPAT were also up (although down as a % of revenue).
For those that don't know Kelly Partners is a accountancy practice roll-up focusing on servicing SMEs and high worth individuals. It is very prominent in NSW, particularly western Sydney, but has branched out to other regions and has aspirations to take its model overseas. So far sounds pretty dull but there are a few things that make it more interesting. Firstly the founder and Managing Director Brett Kelly is a devotee of Charlie Munger and Warren Buffett and has done the rite of passage to the Berkshire Hathaway conference in Omaha. He is also a fanatical reader and indeed has some investment books that any new employees/partners are required to read during their induction (or face termination). Surprisingly for an acquisition model company they have not issued a share since IPOing in 2017 and Brett Kelly has stated he has no intention on that changing. They also are one of the few companies to pay a monthly dividend.
Brett appeared on a recent Australian Investors podcast with Owen Rask and it's worth a listen whether you're interested in the company or not. It was also discussed on a recent Baby Giants podcast and is a bit of a favorite on FinTwit. I've looked at it a few times and just never gotten the conviction to buy it (to my detriment). I'm ok with the rollup model but the minority interest that generates makes it hard to analyse this company and get comfortable with the financials. Also, although it's great they haven't been issuing script, the consequence is they have a high level of debt. In fact net debt plus contingent consideration is greater than the entire equity of the company. Also as a result of all the acquisitions intangibles are very high, mainly goodwill and customer lists, which have arguable intrinsic value and no tangible value.
I suspect my biases will prevent me from owning it any time soon but a really interesting company whose journey is worth tracking.
As a roll up play of services businesses, KPG is usually something I stay a mile away from. But i bought a small parcel in 2019 and 2020 at 75c because it was just so cheap.
I was happy to exit at around $1, but now wish I had held on!
Revenue was up 5.8% for the first half of 2021, but improving margins saw net profit per share up 55% (excluding acquisition amortisation).
I think management are smart operators, and this is a growth model that works well in the early years (if done right). The company appears to be effectively capturing its niche and is approaching scale.
There's still a decent growth opportunity ahead.
On an annualised basis, the PE is just under 17 -- not too demanding, all else being equal.
There could be more upside here, but for this kind of business i usually want a pretty attractive discount. The low hanging fruit is picked early, quality acquisitions become harder to find, and less impactful when purchased.
That being said, the higher the earnings multiple, the more attractve the "multiple arbitrage" becomes (eg buying a business on 4x earnings using shares trading at 16x earnings).
I'll continue to watch, but not inclined to dip my toe back into the water just yet.
Results presentation here
